Is your financial advisor a fiduciary?

  by Tyler Curtis

Over the last several years there has been a lot of focus on providing investors with a higher degree of protection by increasing the oversight of industry regulators. One very important term that sets advisors apart, is whether or not they are considered to be a fiduciary.

Fiduciaries are defined as those who act on behalf of others, placing the best interests of their clients before their own. One would assume that all financial professionals are considered fiduciaries by law, but this is not the case. The industry as a whole has done a poor job of educating investors on how to distinguish the difference between a salesman; and a fiduciary who puts your interests before his or her own. So who is considered a fiduciary?

Generally speaking there are two types of financial professionals when it comes to financial advisors. The typical broker is regulated by FINRA and is only required to recommend investments that are “suitable” for their clients. In short, this means that they could technically recommend “the least suitable, of all the suitable investments” and still comply with the law.

Registered Investment Advisors however, are required to only make recommendations which are in the absolute best interests of their clients. In addition to this, Registered Investment Advisors are also required to eliminate or fully disclose any conflicts of interest, including fees and commissions that they may earn from their recommendations. By law these individuals are required to create a higher level of transparency with their clients than the typical broker.

I do want to point out that being a broker does not imply that the individual is unethical or that they will not put your best interests first. The majority of individuals in the industry are in this business to help others reach financial success. That being said, what can you do to protect yourself and know that you are receiving the most non-biased advice possible? Here are a few steps that may help you when dealing with a financial professional:

– Ask those giving you investment advice, sales pitches or retirement suggestions if they are acting under a fiduciary responsibility. If they aren’t, ask them if they are willing to, and if they would put that in writing.

– Insist that your advisor inform you of any conflicts of interest related to their recommendations and disclose any commissions, referral fees or other compensation they receive from selling you their financial products.

Any quality advisor should be more than happy to provide these details to you. Quality advisors know that the work they do for their clients’ takes time and effort on their part. These advisors do deserve to be compensated for their work, but by disclosing the details of their compensation to you up front, they can help eliminate the issue of having conflicts of interest.

As a proud Registered Investment Advisor I encourage you to seek the transparency that professionals in my field should be providing you. With this complete transparency you can rest assured that the valuable advice you are receiving from your financial advisor is based on your needs, not theirs.

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